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Home , Cash flow, Cash flow forecasting

FLOW SURVIVAL GUIDE

STEPS TO TURNING THE TIDE

Receipt Bank Guides NOTHING IS CERTAIN IN BUSINESS OR IN LIFE. CRISIS OR NOT, CREATING POSITIVE IS AN ESSENTIAL FOR ANY ENTERPRISE AND CAN BE ONE OF THE TOUGHEST HURDLES TO GET OVER. MANY SMBS STRUGGLE TO SURVIVE DUE TO LACK OF CASH FLOW UNDERSTANDING.

In this guide, we gathered advice and strategies from experts within the wider and industry. It starts with keeping a finger on your financial pulse and taking a granular look at your income and expenditure.

Here are the two ways any business can manage their finances and gain clarity over their cash flow. We will dive into cash flow statements to better understand where you’ve been, then explore so your business can know where it's headed.

Walk away from this guide with the know-how and knowledge needed to:

• Understand your cash flow • Modernise your systems • Manage the unexpected

Let’s begin.

PAIN POINT SOLUTION

Not enough visibility over your own Put it all in one digital place.

Start building a cloud accounting app Don’t have the right financial tools to stack, use software that integrates with tackle data your general .

Run more and loss reports using Limited view of financial health real time financial data.

Use a and Not enough cash flow throughout the forecasting system to determine your year for a rainy day position now and in the future.

Cash Flow Survival Guide 2020 3 FIRST THINGS FIRST: KNOW YOUR POSITION

Businesses are often born from a passion, but for many owners, that isn’t always accounting or bookkeeping. First rule of thumb - money in the bank does not mean you will have enough for the rainiest of days. Business health and growth is directly tied to your cash flow, so the first step in your assessment should be asking the hard questions. What does your current situation look like?

Use the Cash Flow Statement system The cash flow statement displays your past and current cash position. It’s an important member of your company’s financial report family, along with an , cash flow forecast and . It details how money has entered and exited your business over a period of time and defines company solvency. This is what investors (if applicable) will look at first. By observing these inflows and outflows, you will develop a much clearer picture of your true financial status and maintain a positive flow. Let’s dive deeper:

Inflow Outflow

Inflow is the sources of cash injection and The things that provide also take away. can be broken down into three categories: Outflow is the cash disbursed from your company over a set period of time. 1. This inflow is money made from company 1. Investments investments, so if you were to sell an Buying fixed such as equipment, or one or many long held investments. furniture, buildings and vehicles. Investing in assets like other companies. 2. Operations Cash from your business operations is 2. Operations money you’ve actually been paid from It costs a lot to run a business. Operational customers.This means daily income from costs take the biggest chunk, these include goods and services or through employee salaries, rent, mortgage and . supplies.

3. Financing 3. Financing Financing inflow is money from investors Payments for liabilities like loans and , and donor contributions. i.e. business owner’s draws and distributions.

Cash Flow Survival Guide 2020 5 RECEIPT BANK PARTNER SPOTLIGHT:

ACHIEVING HEALTHY CASH FLOW IN HOSPITALITY

Phool Ashraf and Gains work with the goal of helping the hospitality industry manage and maintain healthy financial environments. For Phool, better cash management starts with getting cash flow right.

“Cash is vital for the survival of any business TO CREATE CASH FLOW and something to which the vast majority of restaurant owners do not give adequate CERTAINTY, YOU NEED TO attention. Seasonal sales trends put strains START BY LOOKING AT on cash flow, leaving restaurant owners GRANULAR DATA SUCH AS: concerned about paying their staff and regular liabilities. Lack of effective cash flow management can cause the business serious risk and can ratchet up pressures for • Supplier relationships and dealing with supplier payments, staff wages credit terms and tax bills in a timely manner. • Seasonal cash inflow trends It can also have a detrimental effect on stock purchasing power, causing stock • Staff wages and premises to be purchased at higher prices and reducing the owner’s access to cash. Cash flow management goes beyond cash flow • plans forecasting. • Tax payments deadlines It involves understanding the underlying cash inflow and outflow figures, expenditure • Operational cash flow requirements, any cash shortfall, developing requirements a cash flow model and the avoidance of overspending. It actively promotes optimum • Owner’s drawing requirements employment of available cash within the business.” • Shortfalls between inflow and outflow and other sources of fulfilling those shortfalls.

Cash Flow Survival Guide 2020 WHAT SHOULD YOUR CASH FLOW STATEMENT LOOK LIKE?

BREAK DOWN YOUR CASH FLOW STATEMENT USING THE THREE CATEGORIES PREVIOUSLY DISCUSSED.

Traditionally a cash flow statement resembles this: However it's easier to visualise if you keep the structure simple Cash Flows from (used in) operating activities before diving deeper and laying it out on an official document. Cash receipts from customers 9,500 Receipt Bank’s resident Enterprise Cash paid to suppliers and employees (2,000) Partner Success Consultant Mel Cash generated from operations (sum) 7,500 Dowie began her career as a bookkeeper and advisor. Insterest paid (2,000) “Understanding where your money Income taxes paid (3,000) is coming from or going to in your business is essential. ‘Cash is King,’ Net cash flows from operating activities 2,500 as the saying goes, and it is so true,” says Mel. Cash flows from (used in) investing activities She created an easy to follow Proceeds from the sale of equipment 7,500 9,500 system featured in her bookkeeping received 3,000 9,500 guide, BookieBook to help with better grasping your position. Net cash flows from investing activities 10,500

Cash flows from (used in) financing activities Bank Balance - Current inflow

Dividends paid (2,500) Bank Balance - Savings inflow

Net cash flows used in financing activities (2,500) Debtors (money owed) inflow

Net increase in cash and cash equivalents 10,500 Creditors outflow Cash and cash equivalents, beginning of year 1,000 Credit Card Liability outflow Cash and cash equivalents, end of year 11,500 Loan Liability outflow

Total Balance

Write it down or type it out, but spend time collating your standing based on a set period of time.

7 USE TECHNOLOGY TO GATHER DATA

The more data, the better. This will help create a clear picture of your cash position, but how do you get it all in one place, clean and ready to use? Luckily, there is technology out there built to help you capture and control your financial data.

Know what you’re owed and what’s due using digital general like Xero and Intuit’s Quickbooks.

Get the data into these ledgers quickly using data capture software like Receipt Bank. Our mobile app integrates with general ledgers and creates even more cash overview in a few ways.

CLEAR PROCESS:

Receipt Bank uses Optical Character Recognition (OCR) technology, which allows users to snap a picture of a receipt or invoice for data extraction. This data is then plugged into your software. When it comes to accounts payables and accounts receivable, it's a very useful tool.

Features like Supplier Rules, allows users to build efficiencies around data entry. Eliminating the receptive task of having to type the same data in month on month for a supplier whose is always treated the same way. ie Rent, telephone.

Cash Flow Survival Guide 2020 9 MINDING THE GAP

WHEN A CRISIS HITS, MINDING YOUR CASH GAP IS VITAL. THE SPACE BETWEEN PURCHASING SUPPLIES OR SERVICES AND RECEIVING PAYMENT FROM CUSTOMERS CAN GET BIGGER THE LONGER IT ISN’T FILLED AND FINANCED.

Racking up between these two points can directly affect your profit and no one wants to see how big that snowball can get.

The smaller the gap, the better. There are a few ways to alleviate the pain of a cash gap.

Collect accounts receivables earlier. Use a direct debit system which determines the time 1 between payments for you, so there is no guessing.

Run a receivables analysis, chase the 30 day payments and write off anyone 90 days past 2 due. Removing bad can help in the long run.

Renegotiate supplier payment times for a longer stretch so that you can shorten the time 3 between payables and receivables.

Work on a cash basis, only accept payment upfront until you have more wiggle room due to 4 positive cashflow.

Cash Flow Survival Guide 2020 LOOKING AHEAD: RAINY DAY PLANNING

Once you’ve created a cash flow statement, the next step should be a cash flow forecast. Cash flow forecasting is the secret weapon and the self fulfilling prophecy your business requires.

The main goal of cash flow forecasting is to manage your capital better so that you can make an impact on the cash you do have per month.

It allows business owners, accountants and bookkeepers to grasp where they will be financially in the next weeks, months or years. This knowledge aids in better decision making and fewer cash shortfalls, it ensures that businesses will have the money they need if and when the sky falls.

11 THE CASH FLOW FORECAST

There are two main types of cash flow forecast: Direct and Indirect. Both are essential but can be adapted based on business needs. Direct may be better for businesses with fewer transactions while indirect is sometimes favoured by larger enterprises. However, every business can benefit from including both methods in their forecasting.

Cash Flow Survival Guide 2020 DIRECT FORECASTING INDIRECT FORECASTING

This is forecasting for short term goals. If If you’re looking long term, namely over you want to forecast in real time then this a three year period then consider indirect one is your ticket. It identifies incoming and forecasting. While direct relies on inflows disbursement payments down to the day and and outflows as they happen, indirect includes credit and cash transactions as well makes an informed guess based on as bills, invoices and tax. strategic goals, existing income statements and balance sheets. It’s easier to put Direct forecasting is useful if you are together but not always as accurate as planning over a set period of time, such as 3 direct forecasting. - 6 months. It is also more accurate because it ignores “non-cash” transactions.

NOW THAT WE HAVE THE BASICS, HOW DO YOU BEGIN TO FORECAST?

It starts with mapping it all out. For month to month or direct forecasting, list your inflows and outflows.

Indirect forecasting is more contingent on existing statements and sheets. The same direct mapping method featured below applies but instead, start with over a certain period then add or abstract balance sheet items that affect profitability.

INFLOWS OUTFLOWS

Opening bank balance Creditors (both current and savings) Drawings Debtors Credit Card / Loan Liability Sales Invoices Expenses Work in Progress Savings goals

Predicted cash position at the end of the month BookieBook by Mel Dowie

13 EXTENDING THE RUNWAY

If after creating your forecast, or planning for the next few months you realise that maintaining a consistent cash inflow may be difficult due to unforeseen circumstances like Covid-19. It's time to extend the runway. What do we mean?

It’s time to consider new sources of cash beyond shrinking your business. Every business has the potential to create a new stream of .

Look at your value proposition and how it can be adapted to the new needs of customers For example, many restaurants have started delivery services to make up for the lack of footfall and alcohol companies are producing hand sanitiser. Explore your options based on the inventory or services you offer.

If considering everything beyond external help hasn’t produced any fruit then the government can come to your aid.

HERE ARE LINKS YOU CAN EXPLORE PER REGION:

USA

CANADA

UK

SOUTH AFRICA

AUSTRALIA

FRANCE

Cash Flow Survival Guide 2020 15 LOOKING AHEAD

SMALL BUSINESSES THROUGHOUT THE WORLD ARE THE BACKBONES OF ECONOMIES. THEY ARE DESPERATELY NEEDED AND WILL EMERGE FROM THIS CRISIS DESPITE THE FINANCIAL SHOCK FELT ALL OVER.

While an end date for the current disruption to our lives isn’t certain, here’s what we can recommend going forward:

Don’t make any rash decisions before taking a hard granular look at your financial position. Look for pockets of potential.

Draft an exit plan with renewed knowledge of your finances. Making a plan can provide a much needed morale boost.

Get in line for government financial aid as a back up and use forecasting to ensure you can pay back loans over time.

Think long term. Your customers' needs are going to change. Use this as an opportunity to rethink your value proposition.

Beyond that, stay safe and well. We are here to help.

Cash Flow Survival Guide 2020 17

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Cash Flow Survival Guide 2020